Two Social Security rules I can’t figure out

I am usually pretty good at explaining Social Security laws and regulations. And just as importantly, I can provide the rationale behind various rules. In other words, I can tell you what purpose a certain policy serves or why Congress wrote a particular Social Security law the way they did.

But there are two Social Security rules I simply can't wrap my head around.

The first has to do with wives and widows getting to share — or not share — in any delayed retirement bonus earned by their husbands. (It also applies to husbands or widowers getting benefits from a wife, but 98 percent of the time it's the other way around.) A retiree will get a two-thirds of one percent bonus for each month he delays starting his Social Security checks after age 66. That comes out to a maximum 32 percent bonus if he waits until age 70 to file for Social Security.

But if he has a wife eligible for spousal benefits on his record, she only gets a portion of his age 66 rate, not his age 70 payment. Her portion would be anywhere from about a third to a half of that age 66 rate, depending on when she started taking benefits.

However, here's the twist: If he dies, her widow's rate will be based on his age 70 benefit. And assuming she is 66 or older when her husband dies, she will get 100 percent of this full benefit, with the delayed retirement bonus. In other words, a wife doesn't share in the bonus, but a widow does.

And I simply cannot figure out why the rules work that way. One former Social Security colleague guesses that spouses were never meant to get the bonus, but that widow's benefits are strictly an inheritance. In other words, she just "inherits" what he was getting. Frankly, I don't like that answer. But I can't think of any other reason.

The second policy I can't explain also has to do with benefits paid to spouses. Social Security law has always defined a spouse as someone who is financially dependent on the other spouse. In other words, you can't get benefits on your husband's or wife's Social Security record unless you were dependent on your spouse's income while he or she was working.

In order to keep things simple and keep couples from having to provide all kinds of financial data to support a claim of dependency, the law simply says that if your own Social Security benefit (or any other non-Social Security retirement benefit) is less than whatever percentage of your spouse's benefit you are claiming, then you can be deemed dependent on that spouse.

Here are some quick examples. Frank, age 66, has worked all his life. His Social Security benefit is $2,000 per month. His wife, Amy, also age 66, spent most of her career as a homemaker, but she did work a little bit outside the home. Her monthly Social Security retirement check is $600. Because Amy's benefit is so much less than her husband's, she is deemed dependent and she can collect a wife's benefit on his record. She would get her own $600 check and get a $400 wife's benefit to take her up to the spousal rate of 50 percent of Frank's Social Security benefit.

Now let's change the story a bit and say that Amy worked outside the home more than in the first example, and that by doing so, she earned her own retirement benefit of $1,200 per month. Because her own Social Security benefit ($1,200) exceeds the 50 percent portion of Frank's rate ($1,000), she cannot be deemed dependent on Frank so she won't get any supplemental benefits as a wife. (She would get widow's benefits when he dies, but that's a story for another column.)

The point of these last couple paragraphs is to show that the law says a spouse must be financially dependent on the other spouse in order to claim benefits on his or her record.

But now here comes the twist I can't explain. Let's go back to the first Frank and Amy example. Frank was getting $2,000 per month and Amy was getting $600 per month. There is something called the restricted application rule that I have discussed many times in this column. That rule allows a person who is 66 or older to delay filing for retirement benefits until as late as age 70, but claim benefits on a spouse's Social Security record in the meantime. In other words, at age 66, Frank could file for husband's benefits on Amy's Social Security account. (This is assuming Amy had filed for her retirement benefit already.) Frank would get half of Amy's rate, or $300 per month. He would get those benefits until age 70, at which point he would cancel his husband's benefits and file for his own retirement benefits, which would come with a 32 percent delayed retirement bonus. (By the way, the same scenario would work in the second example, too, except that Frank would get $600 in monthly husband's benefits.)

I simply can't explain why in the world the rules allow this to happen. Frank was certainly not the dependent spouse in these scenarios. So why does the law allow him to collect a "dependent" husband's benefit between ages 66 and 70?

This restricted application rule fell into place only after they raised the retirement age to 66. So I think this spouse-switch procedure might be an unintended loophole of the revised retirement age law. And tens of thousands of new retirees are jumping through that loophole. But my guess is that Social Security planners and lawmakers will be looking to close it. And they would be justified in doing so because it simply does not coincide with the 80-year-old Social Security law that defines a spouse as a dependent.